When I am asked "How do we get bank customers back into the branch?" my answer is simple: How would you get them back into a Borders or Blockbuster store?

October 17

BOCA RATON, Fla. — The demise of bank branches has been predicted for years, but bank executives are stubbornly refusing to prepare any obituaries.

Branch critics point out that storefronts are expensive for revenue-strapped banks to maintain, while customers are using them less and less. But bankers this week rallied in defense of their brick-and-mortar locations, even as they acknowledged that branches are losing some ground to mobile and online banking.

"I see mobile technology as very important, but not a replacement" for branches, Cathleen Nash, the chief executive of Citizens Republic Bancorp Inc., told American Banker in a phone interview on Wednesday.

She is fighting a losing battle with some industry members, who say standalone branches have about as much use as the now-defunct Blockbuster or Borders.

"We're coming to the point very soon where we won't be able to afford just to have branches, on the off-chance that a customer may need it," Brett King, founder of the soon-to-launch MovenBank, told American Banker in an interview on Sunday.

"Behavior is shifting, whether it's three years or five years," he said.

But it remains to be seen whether mobile banking becomes the equivalent of the game-changing Netflix, which helped push Blockbuster out of business, or whether it will be something more akin to Amazon.com. While the giant online retailer has undoubtedly altered its industry's landscape, rivals including Target and Best Buy have survived to compete with Amazon in stores and online

"Where do branches fit among increasingly new technology?" asks Nash. "It's not that they don't fit."

But she acknowledged that banks may have to slim down their branch counts, and be careful to invest in them only to create "activities that support revenue growth in a cost-effective way."

U.S. Bancorp CEO Richard Davis, who began his career as a teller in California, agrees that branch evolution will not necessarily equal displacement.

"I think we all agree that the literal form of a branch will change, because the number of teller windows will continue to reduce," Davis told American Banker in an interview this week.

He and other bank executives discussed the viability of bank branches at American Banker's Best Practices in Retail Financial Services conference, which took place in Florida this week.

Davis says he still believes wholeheartedly in the long-term value of branches as hubs for collecting deposits and dispensing advice.

"This would be the worst time" to close branches, Davis says. "Interest rates are virtually zero and people at this point are not competing so much for deposits. You need to wait to call the question on the value of branches in an environment where a recession is not present and — not or — where interest rates are not rock-bottom," he says, arguing that in better times, branches are key to competing for deposits.

"Right now they [branches] are looking their worst because there's not much to be done in terms of deposit gathering" or in terms of lending, Davis says.

In a speech at the conference on Tuesday, Davis also said that his focus is on in-store locations, rather than standalone branches.

"I would do a lot more nontraditional [storefronts] if I could, and we will continue to, because I do think the future of the branch is still a place for guidance and consultation," he said. "No matter what the brick-and-mortar is, it's going to have to be where people want to be or where they're going to be, not calling them off the streets anymore."

Other banks are also emphasizing the importance of in-store locations.

"The reason the in-stores are really big is that you have ten thousand to fifteen thousand people come by every single day that are potential prospects for us to grow our checking account business," Thomas McDermott, senior vice president of cross-channel strategy for SunTrust, told American Banker in an interview on Monday.

But at the same time, McDermott predicts that branches of all types will decline going forward.

"The next frontier would be much fewer branches," he says, describing a "hub-and-spoke model" consisting of a branch surrounded by ATMs.

McDermott says 80% of SunTrust customers, regardless of age, want access to physical branches. But they "don't necessarily tell us we have to be on every single street corner, as long as they can get to us within a 20-minute drive," he says.

Other bankers point out that the demise of bank branches has been wrongly predicted many times before.

"I attended an [American Bankers Association] conference maybe 20 years ago, and the keynote speaker was Bill Gates. And Bill's theme was that within five or seven years, non-banks would take over the banking industry, and the bank industry would disappear and branches would be gone," TCF Financial Inc. CEO William Cooper said during a speech on Monday. "So that theme hasn't really changed all that much."

Cooper added that TCF continues to attract customers only in locations where it has branches.

"TCF doesn't have any branches in Florida and so we don't have any accounts in Florida," he said. "In the Midwest we have 450 branches and I have two million accounts, and that's what causes the opening of those accounts."

Citizens Republic's Nash adds that the rise of ATMs in the 1970s brought similar predictions about the demise of bank branches.

"I think some people look at mobile and other platforms the way some looked at ATMs in the 1970s. 'Once they take deposits, what do you need a branch for?'" she says. "Well, it's another extension to interact with customers."

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